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DON'T ALWAYS BUY FREE-MARKET SOLUTIONS

A few weeks ago, while reading through a recent primer on economics, I came across the following hypothetical case: Somewhere in the American Rust Belt are two neighboring cities of equal size, Cleanstown and Grimyville.

Cleanstown is pollution-free, while the air in Grimyville is so dirty its residents can hardly breathe. But the houses in Grimyville cost only half as much, so what the people there lose in health and life expectancy, they make up in money.Then the local government of Grimyville passes a Clean Air Act requiring its steel factories to spend $10 million getting soot out of the atmosphere. Good idea?

Not according to the textbook's author, a prominent economist. In his view, the residents of these two towns have an ideal situation as things are. The free market gives them the choice of either clean air or cheap housing. If inhabitants of Grimyville want to avoid the smog, they can move across the border.

If something strikes you as odd about this little fable, it is probably because it makes some assumptions that are at variance with what you know about human behavior.

People don't generally decide where to live on the basis of cost-benefit calculations. They live in a town because they were born there, or because their in-laws are nearby, or because that's where their job is.

The main principle of residence choice isn't rationality, it's inertia - the human instinct to stay put, if at all possible. And so if the air is dirty in your neighborhood, the odds are you don't pull out the "Places Rated Almanac" and look for the best combination of affordability and cleanliness. You agitate for scrubbers.

The penchant of economists for explaining away reality is so widely known that it has been the topic of a whole generation of jokes.

These days, however, I can't help thinking that the illusions of economists have ceased to be a laughing matter.

The 1994 election not only ended decades of Democratic control in Congress and in state governments all around the country but also brought to power a whole generation of economic thinkers to whom the free market and rational consumer choice are the equivalent of religious dogma.

Dick Armey, the new House majority leader, spent years on the lecture circuit in Texas during his pre-Congress days preaching inspirational sermons to audiences about "the miracle of the market."

Sen. Phil Gramm, the Republican Party's best-financed and most aggressive presidential candidate, likes to say he discovered free-market economics in college and was "entranced." Armey and Gramm have one thing in common besides the fact that they are both Republicans from Texas: They are both economics Ph.D.s from the late 1960s.

In the 1990s, a government where Republicans have seized power is, more often than not, a government where economists are very close to the throne.

And they tend to be a special breed of economists: fed in graduate schools of the past 25 years on diets of monetarism and supply-side economics, able to quote Milton Friedman from memory, libertarian in their overall outlook on life and infused with a belief in free markets and rational choice that comes closer to religion than it does to science.

The free market is the answer to quite a few current problems in public policy. What is worrisome at the moment is the number of people in political power who know it's the answer before they have heard the question.

I would offer, as an exhibit of misplaced market worship, the whole concept of school choice. It is hard to find a Republican governor anywhere in the country who does not promote choice, or some form of school voucher system, as the solution to his state's most pressing educational problems. Eleven of the 12 newly elected GOP governors included it as a central theme in their platforms.

School choice assumes that people are rational consumers of education, that given full market choice they will pick out the best schools for their children no matter where they are located, and that when everybody does this, the schools that are now performing badly will have to either improve or go out of business.

This is fine in theory. In practice, there is little evidence so far that people are anything like the rational calculators of educational opportunity that the theory would suggest. In every choice experiment that I know of, the overwhelming majority of parents (usually more than 95 percent) simply opt for the school most convenient to them.

Eventually, one would hope, the fallacies of market worship would become evident even to economists. And in the past few years, they have. A whole group of them has been converted to a doctrine know as "QWERTY" - named, absurdly enough, after the first six keys on the second row of the standard typewriter.

Why, two Stanford economists asked in a paper written in 1982, do most keyboards look just the same as they did a century ago, even though a more efficient order of letters could be created very easily? The reason was that it was too much trouble to change. People were used to it.

In the years since that paper was written, the principle of QWERTY has been used to explain all sorts of economic events that free-market dogma has trouble with.

It can explain why businesses don't always cut their prices at the onset of a recession. It can explain why some countries remain dependent on exporting one commodity when they would be strategically better off exporting a different one. Sometimes it is just too much trouble to change.

Perhaps, a couple of decades from now, these ideas will have worked their way through the economics priesthood and into the recesses of the political system, and we will have congressmen and governors preaching the limits of market power.

One way or another, though, it is a safe bet that we will always have a politics burdened with the past writings of one economist or another, whether it is John Maynard Keynes or Milton Friedman or someone else.

"Practical men," Keynes himself wrote, "are usually the slaves of some defunct economist."

At the moment, it is not the defunct ones we have to worry about. It is the graduate-school zealots of 25 years ago, still alive and well and making policy in Congress and in state capitols.